January 3, 2007 3:38 PM PST

Counting the real 'Second Life' population

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Last month, the virtual world Second Life reached 2 million registered accounts, an impressive number considering it hit 1 million accounts just eight weeks earlier.

But critics argue that the eye-popping, seven-figure total is, at best, misleading. As a result, Second Life publisher Linden Lab is coming under increasing fire from bloggers and gamers who say the virtual world's creators aren't giving their customers the full story.

Not surprisingly, this scrutiny comes as an increasing number of real-world companies, ranging from CNET Networks (publisher of News.com) to tech giants Dell and IBM, set up virtual offices inside Second Life, and mainstream media outlets like Reuters and The New York Times devote an increasing amount of coverage to the 3-year-old creation.

"We're being asked to believe that this is the future of the Internet," said Clay Shirky, a writer and professor at New York University's graduate Interactive Telecommunications Program, referring to the grandiose hype surrounding Second Life and its cultural significance.

"If you're being told that something is the future of the Internet and the arguments are based on the incredible popularity, the first thing you want to understand is how popular it is," Shirky added.

As of Wednesday, Linden Lab reported that there were 2,325,015 "residents" of Second Life. The company defines each of those as representing "a uniquely named avatar with the right to log in to Second Life, trade currency and visit the community pages."

Here's the problem: that total does not equate to what is commonly considered by most Web or online businesses as "active users," in large part because many people who sign up for Second Life try it once and never come back, and because individuals can have as many as five different avatars, each of which would count as a "resident."

The real number of active, individual users who log in on a recurring basis (users who sign up and return on an ongoing basis, though Linden Lab doesn't specify how often that is), is more likely in the 200,000 to 230,000 range, according to internal metrics used by Linden Lab, as well as calculations by others in the industry.

Second Life, for the uninitiated, is a virtual world that allows anyone to join and participate for free and create and own any kind of clothing, vehicle, building or other object. Linden Lab makes most of its money by charging players use fees for virtual land they buy and build on. There are also 42,400 "premium" accounts now in use. These are required for users who want to own land, and which cost a minimum of $9.95 a month.

Some may wonder why the exact number of residents constituting the Second Life population really matters. To investors and advertisers, it matters a lot.

In November, Linden Lab CEO Philip Rosedale told Second Life blogger Tateru Nino that "although Second Life is still challenging to get used to, about 10 percent of newly created residents are still logging (in) weekly, three months later....That percentage hasn't changed much with the much higher rate of new users."

In an interview with CNET News.com Tuesday, Linden Lab CTO Cory Ondrejka reiterated the 10 percent conversion rate, although he also said that for technical reasons, the company does not have a true number of active users.

When asked if the rate meant that there were currently about 230,000 active Second Life users, Ondrejka said, "That's a good number for conversion... That math is right."

That number is also supported by calculations done by a longtime insider of the online games industry.

Doing the math
First, the insider said that one common industry metric for arriving at a number for active users is to multiply the number of peak concurrent users by 10. Since Second Life has had peak "online" numbers in excess of 20,000 recently, that would extrapolate to more than 200,000 active users.

The industry insider pointed to another measurement, which is to look at the monetization ratio--the percentage of users who produce revenue for the publisher--of about 10 percent for digitally-downloaded online games. That, the insider said, jibes with Linden Lab's 10 percent conversion ratio and again points to the 230,000 active user range.

The question of how many people actually use Second Life has always been hotly debated, in particular because it is free for anyone to join.

While 42,400 people pay for premium Second Life accounts, that number pales in comparison to the more than 7.5 million people who pay for subscriptions to Blizzard Entertainment's World of Warcraft.

CONTINUED: The law of online averages…
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